JDS Uniphase Upbeat on LTE and Fiber Trends

By Tiernan Ray

As the Optical Fiber Conference unfolds this week in San Francisco, about which I wrote a bit in a previous post, the CEO of one of the participating companies, JDS Uniphase‘s (JDSU) Tom Waechter, was kind enough to stop by Barron’s offices this afternoon for a brief chat.

Optical is seeing encouraging activity in both the “datacom” applications — those networks built inside of enterprises, for their internal use — and also telecom applications, what the service providers build to sell for revenue, said Waechter. For datacom, the main event is the move of corporate fiber networks to 40-gigabyte speeds from today’s dominant 10-gig speeds and feeds. JDS customers such as Cisco Systems (CSCO), and Juniper Networks, and China’s Huawei tend to dominate in that realm.

Mind you, JDS also sells directly to some very, very large customers, the “hyperscale” data centers, which build their own datacom networks. Waechter is not at liberty to disclose customer names, given how those deals are done. You could take a guess, given hyperscale is dominated by just a handful of tech firms, Amazon.com (AMZN), Google (GOOG), and Microsoft (MSFT).

While direct sales to hyperscale firms is a small component of JDS’s optical component biz, it can generally come with higher margins (the markup from the equipment vendor is cut out of the picture, and, as Waechter notes, hyperscale operators are less concerned with getting the best price on components and more concerned with getting leading-edge technology to speed their time to deploy new networks.) As the hyperscale market grows, then, it may be good for the blended overall margin in the component business for JDS.

Waechter said Google’s experiments with its Google Fiber in select cities is certainly a sign of the times as telecom operators look at different ways to bolster access networks. He wouldn’t comment for the record on JDS’s involvement in the project, but my guess would be JDS is, indeed, a supplier to Google.

On the telecom side, it is really the move to 100-gig networks, where Ciena (CIEN) and Infinera (INFN) having taken the lead, says Waechter.

Waechter notes the company’s rising profile in wireless test, which is intimately tied to fiber-optic networking as higher-speed builds of LTE broadband wireless in turn creates the need for higher back-haul network capacity, from the tower back to the core.

JDS has been rapidly building out its LTE test business in the last three years, and it now makes up 40% of sales for the test unit of JDS, probably heading toward more than 50% in coming years, said Waechter.

JDS is involved with Chinese telcos on that country’s big roll-out of LTE for the first time. Like every other company I’ve spoken with about China’s LTE project, Waechter expresses enthusiasm but is also aware that there are variables in terms of the speed of build-out in China. What he said today was more or less what he’s said in past, which is that Chinese carriers have moved quite quickly to deploy 250,000 base stations in the country. That is expected to be followed by another 350,000 to 500,000 base stations by the end of this year. As far as timing, a lot depends on how comfortable carriers feel about network quality as they analyze individual tower signals in the field, using JDS equipment.

As far as the economic benefit to JDS, Waechter said that while JDS doesn’t provide a full-year forecast, he stands by remarks he made at the end of last year: various LTE build-outs this year, including China, but also enhancements coming to the U.S. and other markets, may add as much as $14 million in new business exiting the final quarter of this year.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.